Earnings And Working Capital Management Of Power Sector Companies In India
Abstract Category: Accounts and Economics
Course / Degree: PhD Commerce
Institution / University: MAGADH UNIVERSITY , India
Published in: 2011
In the modern industrial world the problem of efficient financial management is of prime importance. The efficiency of an organization is measured in terms of certain parameters such as profit/ earnings, management of working capital and payments made to investors in the form of dividend etc., the giant structure of any enterprise including power sector industry can only be built on a sound financial base, which ultimately depends upon the availability of adequate finance in the form of working capital. For bright success of any enterprise the management of working capital and earnings is a significant function of finance manager because it effects the price of shares in the stock market and return (i.e., dividends) to the share holders.
Working capital is the lifeblood and nerve centre of a business. Just a s circulation of blood is essential in the human body for maintaining life, working capital is very essential to maintain the smooth running of a business. No business, no undertakings, no enterprise can brings a sound solvency to the business. It also enables an undertaking in creating and maintaining goodwill. It also enables a business undertaking to pay off its current dues and also provides regular supply of raw materials. Adequate working capital provides inherent strength to the business undertaking and ability to face crisis.
Working capital extremely essential for meeting the daily requirements of an organization. No organization can thrive even for a single day without adequate working capital. It is evident from the words of Accounting standards boards guidance which states working capital as “ the funds available for conducting day to day operation of an enterprise.
The research study of profitability and working capital management in power sector is necessary to be undertaken. The reasons are 1) to assess the working capital needs of power sector in India, 2) to assess the working capital position or short term financial position 3) to assess the profitability of undertakings in power sector 4) to evaluate the association ship between profitability and working capital management 5) to evaluate the trends in profitability, 6) to evaluate the trends in working capital 7) to analyse the reasons of low profitability, 8) to analyze the reasons of inadequacy in working capital etc.,
The research study pertains to the problems of profitability and working capital of the joint stock companies in Power Sector with reference to India taking into account undertakings of all regions of the country. The present study is the two-fold study of “ profitability” and “working capital management” in the sample companies in Power Sector Industry. However, a comparative analytical study is to be made wherever it is necessary for better inferences.
Sampling Design :
The required sample for the purpose of the present study has been selected on the basis of “ Random Sampling technique out of large universe of Power Sector companies of India keeping in view of all the characteristics of the total number of companies of the universe. The present study is confined to large cap and mid cap power sector companies of the country. While selecting the sample companies for the purpose of present study, companies of all regional areas are to be considered along with their weight age in the power industry to have an accurate reference.
The sample included in the present research comprises of several large power sector companies and also same well performing well managed prominent mid cap power sector companies the sample included power generating companies, power transmission and distribution companies and power equipment manufacturing companies. There were hundreds of big and small companies available for the study but 17 prominent companies of large cap and mid cap baskets were selected for the present study, in fact there are more than 50 prominent company’s in power space, 17 were selected randomly through draw of lots.
Tools of Analysis :
In our empirical research analysis, we are inclined to use statistical measurement viz. Arithmetic Mean, Median, Mode, Standard Deviation, Range etc., covering Central Tendency and Measures of Dispersion. Correlation measures too is used for analysis.
The main technique applied here to study the association ship of dependent variable named profitability / earnings and independent variables has been made with the aid of simple correlation statistical technique. It is compared with the companies in power sector. Then correlations were found with the help of formula. Our aim in applying correlation technique to indicate the existence of relationship between dependent and independent variables. Besides we have applied time series technique and analysed the date in order to depict the trend analysis of working capital and profitability.
Summary of conclusions and suggestions :
An enterprise requires all factors of production to promote, establish, commence and function business activities. With the aid of all factors of production, affairs of business can be made run in order to achieve pre-set goals. The factors of production are, viz. Money, materials methods, machines, men and management. All these interwoven like a well is inevitable for even a small work. Money is otherwise titled as “funds”, investment of capital. Such funds are put into business entity captioned as “Capital”. Total amount of investment can be divided into two parts 1) long term investment and 2) short term investment. Short term investment may be termed as fixed investment which is primarily invested in fixed assets. Fixed assets are retained in the business to generate profits during its life, short term investment may be termed as “ working capital”. To run the business smoothly and to meet the day to day operational requirements, short term funds are needed. These funds are required for financing the duration of an operation cycle are known as working capital. Working capital is known as circulation capital since it circulates during the accounting year like a wheel working capital is regarded as life blood of concern. Working capital is nerve-knot of a business enterprise.
Power industry is one of the basic industries. It is the infrastructural industry of a nation. It is necessary for a nation’s development. It occupies a position of predominance in India. It constitutes an important segment of the modern industrial economy of India. It plays vital role on the economic life a country. It has greater utility. It is one of the capital intensive industries. Power industry is the motor of all other industry. Power generation takes place through coal, gas, hydro and also from other non conventional sources such as biogas, solar energy, tidal energy etc., In the present world of galloping industrial growth high standard of living and major life style changes in the living habits of the people, it is the power sector that has gained prominence. Therefore it is reckoned as “ life blood of an economy”, it is termed as the growth engine for the development of an economy.
With the increasing demand for energy and with fast depleting conventional sources of energy such as coal, petroleum, Natural gas forests etc., the non conventional sources of energy from sun, wind blooms, tidal energy, geothermal energy and even energy from waste material are gaining importance.
Many companies followed the inadequate category in current ratio (current assets divided by current liabilities) Power industry, thus depended upon the short-term working-capital finance from commercial banks and others to meet the current working capital requirements.
The other companies showed moderately positive results. From the present study, it showed that 94 percent of the companies recorded a positive correlation between sales, out put and working capital. It is, thus, inferred that the concerns needs more and more working capital when there is more production and more sales and vice versa.
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Dr A Srinivas
This Thesis Abstract may be cited as follows:
EARNINGS AND WORKING CAPITAL MANAGEMENT OF POWER SECTOR COMPANIES IN INDIA By Dr A SRINIVAS
Submission Details: Thesis Abstract submitted by A Srinivas from India on 07-Jun-2011 09:08.
Abstract has been viewed 5500 times (since 7 Mar 2010).
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